When economists use game theory to analyze the strategic behaviour of firms, which of the following do they take into account?
A) the price-taking behaviours of oligopolists
B) the allocative efficiency of their rivals
C) the price-making behaviours of perfectly competitive markets
D) the expected behaviours of rival firms because of the interdependence in the market

Question

Quizplus · Accepted Answer

When economists use game theory to analyze the strategic behaviour of firms, they take into account the expected behaviours of rival firms because of the interdependence in the market. Game theory recognizes that each firm's decision affects the outcomes of the other firms in the market, and thus, firms must consider the actions and reactions of their competitors when making decisions. By doing so, they can determine the best strategy to adopt in order to maximize their profits.

When Economists Use Game Theory to Analyze the Strategic Behaviour